Iceland

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TAXES - ACCOUNTING

 

 

Corporate tax

Tax rate for resident companies

Limited liability companies pay 18% income tax.
Registered partnerships for tax purposes with unlimited liability pay 26% income tax.
International Trading Companies pay 5% income tax.

   
Tax rate on long-term capital gains Capital gains are currently subject to the normal corporate income tax rate.
   
System governing groups of companies and dividends paid by subsidiaries to their parent companies Dividends paid to non-resident companies are subject to a withholding tax of 15%.
   
Tax rate on branches Branches of foreign companies are taxed on income derived from their activities in Iceland. Tax is calculated at the regular corporate tax rate of 18%.




Income tax

Fiscal year The fiscal year begins on January 1-st and ends on December 31 of the same year.
   
Income tax rate The national income tax rate for 2004 is 25.75% and the municipal income tax rate may vary from 11.24% to 13.03% between municipalities, the average rate in 2004 being 12.83%, which makes a total rate of 38.58%. Income tax is paid as the income is earned and is withheld at source by the employer. A monthly tax deduction of ISK 27,496 (USD 386) is available, meaning that income up to ISK 71,270 (USD 1002) per month is tax-free. A special 4% state income tax (surtax) will be calculated in 2004 on an individual’s annual income over ISK 4,191,686 (USD 58,905), or a married couple’s income over ISK 8,383,372 (USD 117,810). This surtax will be reduced down to 2% in 2005 and abolished in 2006.
Tax Schedule 2004:
0 - 855,240 ISK0%
855,240 to 4,191,686 ISK 38.58%
Beyond 4,191,686 ISK 45.58%
   



VAT rates

Standard rates 24,5% for most of the products and some services.
   
Reduced rates 14% for books, hotels, hot water, electricity and fuel oil used for domestic and commercial heating. No VAT for exports, public health-care services, schools and other educational institutions, domestic and international passenger transportation and cargo transport between Iceland and foreign countries, postal services, house rentals and sales and rentals of trade aircraft and vessels, insurance services and banking and the operation of other financial institutions and sales of bonds.



Other important taxes


Name of tax
Rate
Land taxes  
0% to 1,57% according to property asset  
Succession  
5 to 40%  
Donations  
0% to 46,94%  


 

Accounting

Introduction
The accounting of the Scandinavian countries (Denmark, Finland, Iceland, Norway and Sweden) are very similar thanks to their closely related history and culture.
The relation between the accounting and the tax system is the same as in Germany.


General accounting principles
Intangible assets can be booked in the balance sheet or in expenses in the profit and loss account (choice of the company).
Physical fixed assets must be estimated at the original or production cost.
Current assets have to appear at the lower cost and value of the market.
Stocks are estimated at the weighed average cost or by the FIFO method.

Obligations and publications
Law refers to the notion of "good accounting method" as regards the methods of companies for the elaboration of financial status.
All the companies of capital have to send a copy of their annual report to the legal authorities of the country. This annual report must contain a profit and loss account, a balance sheet and an annual report.

Certification and auditing
The audit is compulsory.

Professionals and representative organizations
The auditors: they are represented with the FLE (Félag löggiltra endurskodenda) which are the authorized auditors.



Useful links
For further information, please contact the Invest in Iceland Agency as well as the Ministry of Finance of Iceland.

Last modified in 2006 - ongoing update
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